A widely known statistic from the past 5-6 years that characterizes the labor market situation in Bangladesh is that about 2 million new entrants enter the labor market every year on average. Anyone who reads articles, newspapers, research papers, and reports and is aware of the labor market phenomenon in Bangladesh is familiar with these statistics. Following these statistics, we also come across the generic statement that “there are no jobs” to accommodate this huge number of new entrants in the labor market every year.
We do not dive deep into it and often forget to consider this ‘joblessness’ or ‘loose labor market’ in light of the country’s economic growth. In other words, we do not consider the employment elasticity of growth, meaning the ability of an economy to generate employment opportunities for its population as % of its growth (development) process.
Employment elasticity measures the percentage change in employment associated with a 1% point change in economic growth. An employment elasticity of 1 denotes that employment grows at the same rate as economic growth. The elasticity of 0 denotes that employment does not grow at all, regardless of economic growth.
Despite Bangladesh’s economic growth in recent decades, the pace of employment generation has remained relatively low. The average annual GDP growth rate between 2010 and 2022 was 6.5 %, while the average employment growth lagged at 2.5 %.
The employment elasticity of growth witnessed a big fall from close to 1 % in the early 2000s to just 0.12 % during 2013-16 (Figure 1). Subsequently, it rose to 0.32 from 2016 to 2017 and continued its upward trajectory, reaching 0.43 during 2017-2022. It is clear that the employment elasticity of growth in Bangladesh is still low, sluggish, and inconsistent.
The country has a huge out of labor force or inactivity among people in the economy. Almost half of the working-age population is out of the labor force and is under the category of economic inactivity. Over 46 million individuals, nearly 39% of the working-age population, are outside the active labor force as they are not actively seeking employment.
Things are even worse for women when it comes to labor market conditions and employment. The proportion of female workers in the manufacturing sector has declined over the last decade. Trends suggest a declining share of female workers in the manufacturing sector, from around 3.8 million in 2013 to around 2 million in 2022.
There is a clear symptom of ‘deindustrialization of the labor market’ as employment in the manufacturing sector declined from 8.8 million in 2016-17 to 7.9 million in 2022 – a decline of 0.9 million in just five years. These fragile characteristics affect the youth and women the most in the labor market.
The unemployment rate among youths (between the ages of 15 and 29) has substantially declined from 10.2% in 2016-17 to 8% in 2022. However, the issue of young individuals not engaged in employment, education, or training (NEET) remains a significant challenge for the Bangladesh labor market. In 2022, about one-third (27%) of the youth population was classified as NEET (Not in Education, Employment, or Training). The NEET rate was higher for females at 45%, compared to 9.2% for males.
Heavy rural employment with very low urban employment indicates higher employment intensity in low-productive sectors and the economic landscape. Rural areas employed an additional 9 million individuals, while urban areas saw an increase of 0.7 million. The highest share of employment is in low-value-added sectors and areas such as agriculture.
In FY2022, the agriculture sector accounted for 45.3% of total employment, while the sector contributed only less than 12% to GDP. This sector employed 32 million individuals in 2022, which would be much higher if the indirect contribution to employment were considered. This is a big problem in Bangladesh’s labor market that increasingly triggers the number of working poor people in the country as most of the population is employed in low-productive sectors such as agriculture.
Gender-disaggregated data from the Labor Force Survey 2022 reveals that women’s employment in the formal sectors is declining (3.4%), with over 95% of females working in the informal sector. There is a high level of NEET youth (not in employment, education, or training). The NEET rate was highest among individuals aged 15-19 (27.3%), followed by those in the 25-29 age group (19.8%).
Figure 2 demonstrates Bangladesh’s poor labor productivity compared to the regional and global average.
Connected to productivity are a lack of formal and decent jobs, a scarcity of skills, and a lack of diverse economic growth with strong and diversified industrial growth. The growth of wages in Bangladesh has been slow and even negative sometimes if we consider the real wage growth rate.
Figure 3 depicts the growth rate of real wages in Bangladesh compared to other South Asian countries. Bangladesh’s real wages have either grown negatively, declined, or grown insignificantly. This has socioeconomic implications, as there is an increasingly large share of working poor people and also a deficit of decent work for the employed population with poor living standards.
The gender wage gap, particularly in agriculture, must be captured by understanding the differences in work performed by men and women. To address the impact of inflation on wage adjustments, a predetermined minimum cutoff to accommodate economic fluctuations is needed.
Additionally, the role of minimum wages in sustainable poverty reduction, especially in extreme poverty contexts, is crucial. Data limitations pose challenges in assessing the fundamental link between productivity growth and wages. The country faces a dilemma, where despite significant industrial output growth, employment has decreased, indicating that the benefits of this growth might have yet to reach the workers due to stagnant minimum wages.
Policy recommendations
The topmost priority should be the effective implementation of the National Employment Policy (NEP) 2022 in coherence with other national policies and strategies to create decent jobs for all. Creating jobs and enterprises and diversifying the manufacturing sector are crucial.
The government must design and implement active labor market policies, crucial for addressing labor market challenges. Formulating a National Wage Policy can be a good start to strengthening labor market institutions (LMIs) as they transform into formality.
Due to technological transformation, we need demand-driven skills development initiatives to address skill gaps and future skills needs. A comprehensive and dynamic labor market information system can help address skill mismatch and support the efficient operation of the labor market. Above all, Bangladesh should ensure adequate employment opportunities for youth to benefit from the demographic dividend.
All the analysis and views are the author's own views and analysis based on secondary data sources. It has no organizational link or representation.
Mohammad Avi Hossain is a Labor Economist, working at the ILO.
